Differentiated Duopoly with Asymmetric Costs: New Results from a Seminal Model

University of Nottingham Economics Discussion Paper No. 03/19

53 Pages Posted: 16 Jan 2004

Date Written: September 2003

Abstract

This paper re-considers the comparison of Bertrand and Cournot equilibria in a differentiated duopoly with linear demand and cost functions. It focuses on the case of substitute goods, and allows for cost asymmetry between forms. The main finding is that, when the degree of cost asymmetry is sufficiently high and/or the degree of product differentiation is sufficiently low, equilibrium profits of the efficient firm and the industry profits are higher under price than under quantity competition. This contrasts with a standard result by Singh and Vives (1984), that is, with substitute goods both firms earn higher profits under Cournot than under Bertrand competition.

JEL Classification: D43, L13

Suggested Citation

Zanchettin, Piercarlo, Differentiated Duopoly with Asymmetric Costs: New Results from a Seminal Model (September 2003). University of Nottingham Economics Discussion Paper No. 03/19, Available at SSRN: https://ssrn.com/abstract=474480 or http://dx.doi.org/10.2139/ssrn.474480

Piercarlo Zanchettin (Contact Author)

University of Leicester ( email )

Department of Economics
Leicester, LE1 7RH
United Kingdom

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